Broker tips: William Hill, Asos

Analysts at Canaccord Genuity downgraded bookmaker William Hill to 'sell' from 'hold' on Thursday, stating execution risks still remained despite the group's £224m placing "significantly" repairing its balance sheet.

Canaccord said the gross proceeds of William Hill's placing, combined with a roughly £200m VAT refund, should significantly de-risk the group's balance sheet and leave it no longer over-leveraged.

However, the Canadian broker stated that with the group upping its US investment, execution risk had increased in a "crowded and well-funded marketplace" and added that further UK regulatory risk had also increased with a report from the All Party Parliamentary Group for Gambling Related Harm recommending the banning of betting in-play and reiterated its call for a £2 maximum online stake.

Canaccord said that on its revised forecasts, William Hill's stock trades on a full-year 2021 price-to-earnings ratio of 18.9x and a lease-adjusted enterprise value/earnings before interest, tax, depreciation and amortisation of 7.0x.

"This appears too expensive to us given the risk profile," said the analysts, which did maintain their 110.0p target price on the group's shares.

Credit Suisse has upped its target price for Asos on expectations for an improved sales performance in the second half.

The bank, which has an ‘outperform’ rating on the online fashion retailer, increased its target price for the shares to 4,100.0p from 3,600.0p. It is forecasting sales growth of 11% in the second half, against consensus for a 4% decline, and a full-year earnings before interest and tax margin of 2%, up on an earlier estimate of 1%.

Credit Suisse said: “Our social media tracking shows record engagement on Instagram in May, and over the past two years, it has shown inflexion points in sales growth.”

“Asos may have been capacity-constrained due to social distancing and operational considerations in its UK and German distribution centres. However, next day delivery was switched back on two weeks ago, so it appears that capacity has increased and the likely reduction from 2m to 1m should help it through peak.

“While there will be some additional costs, they should be partly offset by lower returns and promotions.”

The bank concluded: “We believe that the improving sales and margin profile under the new management team remains under-appreciated by the market.”